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Notes From the Fieldby Martin Weil

October 9, 2013

Headlines I Never Thought I Would See In Print

“5 countries with bonds safer than Treasurys” is today’s lead article at Marketwatch.

For over a hundred years Wall Street has marketed one assurance to its customers above all others.

The line: That U.S. Treasury bonds, the IOUs issued by Uncle Sam to pay for national debts, are utterly without risk of default. …

According to the International Monetary Fund (IMF), the U.S. government’s net debt is now 89% of gross domestic product. By contrast, Germany—often thought of as Europe’s most financially sound nation—has net debts of only 56% of GDP.

But if you want really, really safe, you should look a little further north of there—or a long way south. Scandinavian countries, and the Antipodes, have the best financial picture of all.

New Zealand’s net debt is just 29% of its economy, and Australia’s is just 13%, according to the IMF.

I imagine the list of countries with safer sovereign debt will get considerably longer if the US should wander into the dreaded default option. Yes, the US still benefits from the “exorbitant privilege” of being the world’s reserve currency and a safe haven in times of crisis. But privilege comes with responsibility. And the US is instead behaving like the spoiled child who owns all the toys. At some point our diffident behavior regarding our financial obligations will have a material cost. If the US is no longer capable of acting as the responsible senior party to the global financial marketplace, certainly there are other countries who would happily step forward.

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